Bank of England: Gauging market dynamics using trade repository data: the case of the Swiss franc de-pegging

The Bank of England (“the Bank”) has access to some of the granular transaction level data resulting from EMIR trade reports. The velocity, granularity and richness of this dataset puts it in the realm of Big Data in the derivatives market, which brings with it its own set of challenges. These data have a number of potential uses in monitoring the market and helping to set policy. But these uses are only possible if the data are both accurate and complete on the one hand and we are able to analyse them effectively on the other. To help determine the status of these factors, we carry out a study of an external event to see how it was represented in the data. A suitable event was identified in the decision of the Swiss National Bank to discontinue the Swiss franc’s floor of 1.20 Swiss francs per euro on the morning of 15 January 2015. This was expected to show a number of effects in the Swiss franc foreign exchange over-the-counter (FX OTC) derivatives market. The removal of the floor led to extreme price moves in the forwards market, similar to those observed in the spot market, while trading in the Swiss franc options market was practically halted. We find evidence that the rapid intraday price fluctuation was associated with poor underlying market liquidity conditions, in particular the limited provision of liquidity by dealer banks in the first hour after the event. Looking at longer-term effects, we observe a reduced level of liquidity, associated with an increased level of market fragmentation, higher market volatility and an increase in the degree of collateralisation in the weeks following the event. It is worth noting that whilst we analyse the impact of the event on the market and its visibility in the data, we are not commenting on the SNB’s policy decision itself.